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Article:

Componentising ESG: How greater focus on ESG may lead to opaque VfM disclosures

08 June 2022

Given the ever-increasing focus on the environmental impact of big business, and government plans to phase out gas powered boilers by 2035. There are a plethora of considerations and decisions to be made by management that will have an impact not only on the day to day running of associations but on what and how they report performance in the Annual Report and Financial Statements.

To date the focus on changes to the Annual Report and Financial Statements for ESG has been on the front end - describing the strategic work of associations in mitigating their carbon footprint and disclosing the levels of emissions they currently have.

However, as the agenda evolves from the theoretical and strategic to the day to day operational thought will necessarily turn to the impact physical changes such as the move to alternative heat sources will have within the VfM metrics and financial disclosures.

In a sector which prides itself on it’s ability to provide transparent and comparable reporting for mandatory VfM metrics and financial disclosures. There are likely to be significant challenges in identifying and coalescing around benchmarks and best practice for disclosing the financial impact of moving from old gas boilers to a variety of new environmentally friendly heat sources.

Based on our latest Social Housing Barometer only 16% of associations have early adopted the phase out of gas boilers, with a number of respondents pointing to the lack of suitable environmentally friendly alternatives. This statistics highlights a potential developing disclosure headache where divergence in sector opinion on the efficiency and effectiveness of alternative heating solutions begins to dilute the comparability of sector data making meaningful comparison of VfM and financial disclosures increasingly difficult.

Given this is but one of numerous strategic projects within the ESG space which will require focus in the next 10 years. It will be necessary for the Sector to drive open and honest communication to understand not only the most appropriate operational pathways but also the most consistent treatment of costs and income associated with the changes. In that way the Sector can achieve its ESG aims without diluting the comparability of its VfM metrics and other financial disclosures.